WSJ: Pension Systems Strain Europe

Pension Systems Strain Europe
Early-Retirement Culture Has Become a Public-Policy Headache

The Wall Street Journal 06/17/04
author: John W. Miller / Dow Jones
(Copyright (c) 2004, Dow Jones & Company, Inc.)

Joel Crevecoeur can't wait to turn 60 years old. "That's the day I stop working," he says, as he lines up a pool shot and nails the eight ball. "I'll also get the pension I've been working for my whole life."

Like many Europeans, the 44-year-old financial analyst for Bank Degroof, a Brussels investment bank, yearns for, believes in and says he deserves a comfortable postcareer life. "Americans can work until they're 85," he says. "In Europe, retirement is a sacred right."

It also has become a public-policy headache. With the population aging fast, Europe's culture of retirement by 60 -- and often even 55 -- is a big economic liability.

Baby-boom retirement is bankrupting pension and health systems and curbing European competitiveness. Governments and economists recognize and are trying to solve the problem, but political obstacles and deep-seated cultural preferences stand in the way.

Right now there are four workers for every retiree in Europe. By 2050, if current trends continue, there will be two per retiree. In order to maintain the current level of pensions, public expenditure will need to rise by as much as 10 percentage points of gross domestic product, according to Kieran McMorrow, a European Commission economist and co-author of the book "The Economic and Financial Market Consequences of Global Aging."

Because of the increased spending and the loss of potentially productive working hours, Mr. McMorrow estimates average European Union GDP -- the total value of goods and services produced -- will be a mere 1.25% in the next few decades. But if everyone in the EU worked until 65, growth could be a full percentage point higher.

European citizens' embrace of the welfare state makes the issue more important there than in the U.S. Pensions make up an average of 21% of EU public spending, compared with only 4.8% for Social Security in the U.S. Politicians have been calling for overhauls for a decade, but the situation has acquired a sense of urgency only in recent years, with budget deficits widening as growth slows and the population ages.

Very very interesting. I wish I could retire that early. I'll probably be working until I'm eighty... :-(